NEW DELHI: For much of the investing community the world over, Warren Buffett’s words are like gospel.

Every insight on investing he shares becomes a thumb rule. In his much-followed letter to Berkshire shareholders, Buffett, 88, this time dropped a few interesting investment tips.

Go for the kill, do not to get killedBuffett’s Berkshire might be the world’s largest financial company by revenues, with a market-cap in the north of $400 billion, but the legendary investor does not believe in buying businesses at higher price. In his letter, he said he does not buy more stocks on a market call as he and Charlie Munger have no idea as to how they will behave next week or next year!

“Predictions of that sort have never been a part of our activities. Our thinking, rather, is focused on calculating whether a portion of an attractive business is worth more than its market price,” he said.

Buffett said he wants to put money into businesses that Berkshire will permanently own. But the immediate prospects for that, he said, are not good, given the sky-high prices for businesses possessing decent long-term prospects.

“We continue, nevertheless, to hope for an elephant-sized acquisition. Even at our ages of 88 and 95 – I’m the young one – that prospect is what causes my heart and Charlie’s to beat faster. (Just writing about the possibility of a huge purchase has caused my pulse rate to soar.),” he said,

Buffer cash a mustData suggests Berkshire had $112 billion in US Treasury bills and other cash equivalents as of December 31, and another $20 billion in miscellaneous fixed-income instruments. Buffett said he would never risk getting caught short of cash. “We consider a portion of that stash to be untouchable, having pledged to always hold at least $20 billion in cash equivalents to guard against external calamities,” he wrote in the letter.

Buffett said he avoids activities that could threaten the buffer cash. “Berkshire will forever remain a financial fortress. In managing, I will make expensive mistakes of commission and will also miss many opportunities, some of which should have been obvious to me. At times, our stock will tumble as investors flee from equities. But I will never risk getting caught short of cash,” he said.

Beware of ‘innocent’ fudgeBuffett said over the last many years, he has seen all sorts of bad corporate behaviour, both accounting and operational. He believes the behaviour is induced by the desire of management to meet Wall Street expectations. “What starts as an ‘innocent’ fudge in order to not disappoint ‘the Street’ – say, trade-loading at quarter-end, turning a blind eye to rising insurance losses, or drawing down a “cookie-jar” reserve – can become the first step toward full-fledged fraud. Playing with the numbers “just this once” may well be the CEO’s intent; it’s seldom the end result,” he said.

This reminds domestic investors of Rs 7,000 crore Satyam scam, in which chairman Ramalinga Raju confessed that the company's accounts had been falsified company’s earnings, and fooled investors. Buffett said, “If it’s okay for the boss to cheat a little, it’s easy for subordinates to rationalize similar behaviour.” Investors must try to read deeply into company financials.

Look at earnings, not stock fluctuationsBuffett’s Berkshire managed $173 billion worth of stocks as of December 31. Buffett said this huge exposure often experienced one-day price fluctuations of $2 billion or more. In December quarter as well, Berkshire faced a period of high volatility and experienced several days with what he sarcastically called ‘profit’ or ‘loss’ of more than $4 billion. His advice? Focus on operating earnings, paying little attention to gains or losses of any variety.

Doomsayer peach: Should you bother?Don’t always go by what doomsayers say. He said this in the context of the US economy. “Those who regularly preach doom because of government budget deficits might note that US’ national debt has increased roughly 400-fold during the last of my 77-year periods. That’s 40,000%! Suppose you had foreseen this increase and panicked at the prospect of runaway deficits and a worthless currency.

To “protect” yourself, you might have eschewed stocks and opted instead to buy 31⁄4 ounces of gold with your $114.75. And what would that supposed protection have delivered? You would now have an asset worth about $4,200, less than 1 per cent of what would have been realized from a simple unmanaged investment in American business,” he said.

The magical metal was no match for the American mettle, he said. This suggests investors must not worry about the short-term hiccups in the economy, rather they should focus on the long-term prospects of the same.